New Tax Law – What’s Changing?
Part of being a TrustCare© client at Keystone means you have the comfort of knowing our attorneys are monitoring certain federal and state law changes and how they may impact your estate plan. In 2018, the Tax Cuts and Jobs Act (The Act) became effective containing many changes to the federal tax laws. Below is a summary of a few of the provisions of the Act which may impact your specific circumstances.
Federal Exemptions For Estate Tax Gift Tax & Generation Skipping Transfer Tax
The federal exemptions for estate tax, gift tax, and generation skipping transfer tax have doubled, to $11.2 million for individuals and $22.4 million for married couples. This means that when a single individual passes away with $11.2 million or less in their taxable estate, no federal estate taxes will be owed.
The Act contains a sunset provision. On January 1, 2026, the exemptions for federal estate tax, gift tax, and generation skipping transfer tax will revert back to the amounts that they were in 2017, which are $5.49 million for individuals and $10.98 million for married couples. The outcome of elections between now and January 1, 2026 may also impact these laws, as newly elected officials may alter them.
If you want to take advantage of these increased limits or would like to discuss how these new limits effect your estate plan, contact our office at 480-418-8448.
New 20% Deduction Available For Pass-through Entities
To bring the taxation for pass-through entities in line with that of C-Corporations, The Act gave pass-through entities a generous 20% deduction on qualified business income. Qualified business income is defined as the net amount of your items of income, gain, loss, and deduction from an eligible trade or business, except that items of capital gain and loss are excluded. The deduction is taken below the line, meaning it reduces your taxable income but not your adjusted gross income.
Pass-through entities include sole proprietorships, LLCs, partnerships and S-Corporations. These entities do not pay income tax through their own EIN; rather, the owner of these entities pays tax on the income generated by these entities on his or her personal income tax return.
There are thresholds for various amounts of income which determines if you are eligible for the whole deduction, part of the deduction, or none of the deduction. If the main asset of the pass-through entity hinges on the skill or reputation of one of its owners or employees, the 20% deduction is phased out at certain income levels. This would apply to lawyers, accountants, health care providers, financial service providers, consultants, etc.
The decision regarding which entity type would be most advantageous for your business and your estate plan is a complicated decision and I urge you to contact our firm and schedule time with our attorneys.
Taxation Of Qualified Disability Trusts
The Act made the taxation of Qualified Disability Trusts (QDisT) more favorable. Along with other requirements, a QDisT is a disability trust of which all beneficiaries are receiving SSI or SSDI benefits. The Act not only gave a generous tax exemption of $4,150 to QDisTs, but it shielded this particular type of trust from the Kiddie Tax. If you have a beneficiary who is disabled or likely to be disabled in the future, this might be a good option to explore.
The above list of tax changes is not comprehensive. These are a few highlights of the new tax law that may impact you or your family. Schedule an appointment with an attorney to review your particular situation and estate plan, to ensure your goals are still being met in light of these new changes. If you are a TrustCare© client and have not had your annual review, take advantage of it and contact us to set up your TrustCare© appointment.